Agreements of various legal implications

Agreements in restraint of legal proceedings: Agreements which prohibit legal proceedings or curtail the period of limitation are unlawful. A term in a contract of insurance that a person shall have no right after 6 months from termination of principal contract does not mean that suit to enforce contract has to be filed within 6 months. It means demand has to be made to insurer within 6 months and it is a condition precedent for filing suit.

Agreements to defraud creditors: Agreements to defraud creditors or any revenue authority are void opposed to public policy.

Agreements not to bid: An agreement not to bid against one another is unlawful if the object is to defraud a third person or a decree holder. As a general rule, an agreement not to bid against each other in auction sale which has no intent to defraud but only with an object to make a good bargain is not unlawful. Agreement between all competing bidders at auction sale to form ring and peg down prices is opposed to public policy. However, an agreement between some bidders, to jointly purchase property at auction sale is not opposed to public policy.

Foreign awards: Foreign award in order to be against public policy must be contrary to (1) fundamental policy of Indian Law; or (2) interest of India; or (3) justice or morality.

Non-compliance of Court’s order: Non-compliance of Court’s orders would be destructive of rule of law and contrary to public policy. Order of Courts must be complied with, for non-compliance would be contrary to public policy.

Agreements the considerations or object of which is unlawful in part

If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object is unlawful, the agreement, the agreement is void.


A promises to, super intend, on behalf of B, a legal manufacturer of indigo and an illegal traffic in other articles. B promises to pay A salary of Rs 10,000 a year. The agreement is void, of A’s promise and the considerations for B’s promise being in part unlawful.

The test is whether the lawful part of the agreement can be severed from the unlawful part. If this can be done, the lawful part is enforceable while the unlawful part is void. If, however, it cannot be severed, the whole agreement is void.

In Alice v Clark ( 1905 27 All. 268) where A promised to remain with C in adultery and also work as his house keeper for Rs 50 per month, it was held that the agreement was void and, A could not recover anything from C even for services rendered as a housekeeper as the agreement was not severable. In Union Carbide Corporation v Union of India (AIR 1992 SC 248) when the settlement reached in Bhopal Gas disaster was challenged on the ground of unlawfulness of consideration for dropping of criminal charges and undertaking to abstain from bringing criminal charges in future, it was held that the settlement was not hit by sections 23 and 24 of the Contract Act, as dropping of criminal charges and undertaking to abstain from bringing criminal charges in future were part of the consideration for the offer of 470 million US Dollars by the Union Carbide.

Definition: When at the desire of the promisor, the promisee or any other person (1) has done or abstained from doing or (2) does abstains from doing; or ( 3) promises into do or abstains from doing something, such act or abstinence or promise is called a consideration for the promise.

Every contract consists of two parts: (1) promise and (2) consideration for the promise

Consideration may be to do something or to refrain from doing something. A promise to do or refrain to do something may be in return for benefit received or the loss, damage or inconvenience caused.

Rules: Essentials of valid considerations:

1) Considerations must move at the desire of the promisor.
2) Consideration may move from the promisee or any other person. Stranger to a consideration may maintain a suit. However, under the English law a person not a party to the agreement cannot sue on the agreement. In India a stranger to considerations may enforce a contract but not a stranger to a contract. A contract by a beneficiary is enforceable, though beneficiary is not a party to the contract.
3) Consideration may be past, present or future.
4) Consideration may be an act of doing or abstaining from doing something or it may be an act of forbearance or abstinence.
5) Considerations need not be adequate
6) Considerations must be real and not illusory.
7) Considerations must not be unlawful, illegal, immoral or opposed to public policy.

Importance of consideration: consideration is the most essential element of the contract to create legal rights between the parties. Offer and acceptance bring the parties together. The further evidence of intention of parties is, supplied by considerations. From a bare promise, no right of action can arise.